How The New Congress Can Thoughtfully Repeal ObamaCare’s Expansion

Tomorrow, a new Congress convenes, with the largest Republican majorities in nearly a century. These

Republicans, elected on the promise of rolling back Obamacare, are ready to start chipping away at the

law. One of their first targets? Obamacare’s immoral funding scheme that prioritizes able-bodied adults

over the truly needy.

ObamaCare Values The Able-Bodied Over The Truly Needy

The Federal Medical Assistance Percentage (FMAP) rates determine how the cost of Medicaid will be

divvied up between the federal government and the states. FMAP rates vary by state, depending on

states’ per capita personal income. Under the traditional Medicaid rules, federal taxpayers reimburse

states an average of 57 percent of the cost of providing Medicaid to poor children, pregnant women,

seniors and individuals with disabilities. The match rates for these populations don’t change under

Obamacare.

However, Obamacare introduced a new “enhanced” funding formula for its expansion population. If

states expand Medicaid to working-age, able-bodied adults, federal taxpayers will pay for 90 percent of

the cost of covering those adults. (The matching rate starts at 100 percent for most states and gradually

declines to 90 percent by 2020.)

But the vast majority of the able-bodied adults covered under Obamacare expansion have never been

considered among the most vulnerable, have no disabilities keeping them from work, have no depen-

dent children and don’t typically qualify for other types of welfare, including cash assistance and

long-term food stamps. Why should federal taxpayers pay states nearly twice as much to cover able-bodied

adults as they pay to cover the truly needy?

By Jonathan Ingram, Josh Archambault, and Nic HortonJanuary 5, 2015

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January 5, 2015, How The New Congress Can Thoughtfully Repeal ObamaCare’s Expansion, Forbes.com

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This Funding Scheme Puts The Needy In The Crosshairs

It’s not enough that Obamacare treats this new class of able-bodied adults as more valuable than the

truly needy – this funding scheme actually introduces new, perverse incentives that reward states for

stealing resources from the most vulnerable.

In order to save a single state dollar, states need to cut an average of $2.32 from the “traditional” Medic-

aid budget for children, seniors and individuals with disabilities. On the other hand, if states wanted to

protect the truly needy and extract savings from only this new group of able-bodied adults, policymak-

ers would need to cut a whopping $10 (or more) for every state dollar saved.

Medicaid is already the largest and often fastest-growing line item in state budgets, crowding out

resources for other priorities, such as education, infrastructure and public safety. Thanks to

Obamacare’s perverse incentives, the most vulnerable will be among the first victims when the time for

belt-tightening arrives in state legislatures around the country.

We’ve already seen states prioritize coverage for able-bodied adults over life-saving care for the truly

needy. Obamacare’s immoral funding formula makes this reality even worse.

ObamaCare’s Funding Scheme - On The Chopping Block?

As the national debt continues to skyrocket, cutting this immoral funding is a prime target for the new

congress that’s been sent to Washington with a mandate to stop Obamacare. In fact, Capitol Hill

insiders – including Politico – report that reversing this funding scheme is one of the first items on the

agenda.

Congressman Paul Ryan, chairman of the House Budget Committee, has already warned governors and

state legislators that Obamacare’s enhanced funding for Medicaid expansion wouldn’t last forever.

“The fastest thing that’s going to go when we’re cutting spending in Washington is a 100 or

90 percent match rate for Medicaid. There’s no way.”

- U.S. Representative Paul Ryan, Chairman of the House Budget Committee

U.S. Senators Tom Coburn (R-OK) and Richard Burr (R-NC), joined by several of their colleagues, intro-

duced legislation in the last Congress to repeal the enhanced matching rates for Obamacare expansion.

Congressman Matt Salmon (R-AZ) and his colleagues have proposed similar legislation. In addition,

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Congressmen Tom Price (R-GA) and Michael Burgess (R-TX) have proposed increasing the state share of

Medicaid expansion by at least 10 percentage points. Congressman Burgess and others have also

proposed eliminating the expansion funding altogether.

And these are just the stand-alone bills; similar proposals have been floated as part of a larger budget

deal. But Washington insiders seem to agree: Obamacare’s perverse funding scheme is a primary target.

Could Republicans Find An Unlikely Ally?

On this issue, Republicans may even find an unexpected ally at 1600 Pennsylvania Ave. – President

Barack Obama.

The President has actually proposed reductions in the enhanced matching rate on numerous occasions.

In his 2013 budget, for example, President Obama proposed shifting more Medicaid costs to the states

with a “blended” rate that would ultimately reduce federal support for Medicaid expansion. (Incidentally,

the proposed blended rate would have more than tripled states’ share of Medicaid expansion costs.)

President Obama also made similar proposals during the recent debt ceiling negotiations. The President

has also o�ered other plans to shift more Medicaid costs onto states, including limits on states’ use of

provider taxes to pay for their share of Medicaid spending.

With the federal government now sitting on more than $18 trillion in debt, the only question left is when

the Obamacare funds go away.

How Will Congress Repeal The Funding?

Although many lawmakers have proposed eliminating Medicaid expansion eligibility entirely, one idea

that’s gaining steam is a simple repeal of the “enhanced” matching funds. This would allow states to

continue expansion under the traditional matching rates, but eliminate most of the perverse incentives

in Obamacare’s funding scheme.

According to sources on Capitol Hill, one proposal would gradually wind down the enhanced matching

funds. Under this plan, expansion states could continue receiving the enhanced matching funds for

individuals enrolled in the program by a certain date (e.g., July 1, 2015), at least temporarily. However,

states would only receive the traditional Medicaid matching funds for new enrollees.

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As enrollees gradually roll o� the program, the enhanced matching rates would decline and eventually

go away altogether. Under these new rules, states would also be able to repeal or freeze enrollment in

their Medicaid expansions if they wish.

Winding Down ObamaCare Is A Policy and Political Win

States provide excellent examples to Congress, having successfully rolled back welfare expansions in the

past. Arizona and Maine, for example, have repealed previous Medicaid expansions to able-bodied

adults by freezing enrollment at existing levels and allowing individuals to cycle o� of the program as

their incomes rise. Enrollment began dropping immediately, with more than 5 percent of individuals

rolling out of the Medicaid expansion each month.

Congress should use these examples to craft its own thoughtful Obamacare exit strategy, which would

completely deflate President Obama’s argument that repealing Medicaid expansion would mean

kicking millions of Americans out in the cold. Successfully phasing out the Medicaid expansion could

also serve as a foundation for ultimately repealing the Obamacare exchange subsidies.

Obamacare repeal may not take place all at once, but one thing’s for sure: the new Congress is serious

about rolling back the law. Now it’s time to get to work.

SOURCES:

1. Manu Raju and Jennifer Haberkorn, “McConnell’s Obamacare gambit,” Politico (2014), http://www.politico.com/sto-

ry/2014/12/mitch-mcconnells-obamacare-gambit-113405.

2. Rick Pearson, “ Rep. Paul Ryan warns governors on Obama health care plan,” Chicago Tribune (2013), http://articles.chicag-

otribune.com/2013-04-22/news/-

chi-rep-paul-ryan-warns-governors-on-obama-health-care-plan-20130422_1_paul-ryan-reimbursement-federal-government.

3. “S. 963 - Preventing an unrealistic future Medicaid augmentation plan,” Congress.gov (2013), https://www.congress.gov/113/-

bills/s963/BILLS-113s963is.pdf.

4. “H.R. 1404 - To amend title XIX of the Social Security Act to eliminate the increased Federal medical assistance percentage

under the State plan with respect to newly eligible mandatory individuals under Medicaid, to provide States with greater

flexibility under Medicaid, and for other purposes,” Congress.gov (2013), https://www.congress.gov/113/bills/hr1404/-

BILLS-113hr1404ih.pdf.

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Josh Archambault | Senior Fellow

josh@thefga.org

Nic Horton | Senior Research Fellow

nicholas@thefga.org

Jonathan Ingram | Vice President of Research

jingram@thefga.org

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5. “H.R. 3667 - To amend title XIX of the Social Security Act to increase by 10 percentage points the required State match for

certain newly eligible individuals under the Medicaid program and to apply savings against sequestration reductions otherwise

required, and for other purposes,” Congress.gov (2013), https://www.congress.gov/113/bills/hr3667/BILLS-113hr3667ih.pdf.

6. “H.R. 3243 - To amend titles XIX and XXI of the Social Security Act, titles I and II of the Patient Protection and A�ordable Care

Act, and other Acts for the purpose of eliminating certain health entitlement programs and reducing the deficit,” Congress.gov

(2011), https://www.congress.gov/112/bills/hr3243/BILLS-112hr3243ih.pdf.

7. “Fiscal Year 2013 Budget of the U.S. Government,” (2013), https://www.whitehouse.gov/sites/default/files/omb/budget/-

fy2013/assets/budget.pdf.

8. “Medicaid expansion will become more costly to states,” Heritage Foundation (2012), http://www.heritage.org/research/re-

ports/2012/08/medicaid-expansion-will-become-more-costly-to-states.

9. “Living within our means and investing in the future,” (2011), https://www.whitehouse.gov/sites/default/files/omb/budget/-

fy2012/assets/jointcommitteereport.pdf.

10. Treasury Direct, “The debt to the penny and who holds it,” U.S. Department of the Treasury (2016), https://treasury-

direct.gov/NP/debt/current.

11. Jonathan Ingram et al., “Welfare to Work: How states can nwind Obamacare expansion and restore the working class,” Forbes

(2014), http://www.forbes.com/sites/theapothecary/2014/12/03/wel-

fare-to-work-how-states-can-unwind-obamacare-expansion-and-restore-the-working-class/#3d466815def8.

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